EOG Resources Raises Production Growth Estimate
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EOG Resources (NYSE: EOG) raised production growth guidance for 2012 on the strength of the company’s aggressive development programs targeting the Eagle Ford Shale in Texas and the Bakken play in North Dakota and Montana. The company also reported solid progress on its operations in the Permian Basin in Texas and New Mexico.
Production Growth
EOG Resources raised production growth for the company to 9% for 2012, up from the previous estimate of 7% growth. This improved growth is being powered by more productive wells as the company targets crude oil and liquid projects across North America. The company reported 49% year over year growth in oil and liquids production in the second quarter of 2012.
In 2012, EOG Resources is now looking for crude oil, condensate and natural gas liquids production to grow 35% over last year, compared to the previous growth guidance of 33%.
While high single digit production growth is certainly respectable for a company the size of EOG Resources, there are many operators growing production at a much faster rate. Range Resources (NYSE: RRC) reported average production of 719.3 million cubic feet of natural gas equivalents per day in the second quarter of 2012, up 42% on a year over year basis. The company expects full year production for 2012 to increase 35% over 2011, on the strength of its development of the Marcellus Shale in Pennsylvania.
Range Resources hasn’t made much progress towards increasing the proportion of its production base composed of crude oil and natural gas liquids and reported 80% of production composed of natural gas in the most recent quarter.
Efficiency
EOG Resources is becoming better at drilling in various plays and has reduced its drilling time on wells in the Eagle Ford Shale over the last two years from 21 to 14 days. The company is planning on dropping three rigs here in the second half of 2012 and will drill 330 net wells, an additional 30 wells above the original plan.
Monster Well
If anyone ever had doubts about the productivity of the Eagle Ford Shale, EOG Resources may have ended those concerns with the disclosure of a monster gusher well drilled and completed during the second quarter of 2012. The well is located in Gonzales County, Texas, and had an initial production rate of 4,820 barrels of oil per day.
If that wasn’t enough, the well also produced 972 barrels of natural gas liquids and 4.5 million cubic feet of natural gas per day. If we add all this production together and convert to a barrel of oil equivalent (BOE) basis, the well had an initial production rate of 6,542 BOE per day.
This well reminds me of the gusher reported by Chesapeake Energy (NYSE: CHK) in the Hogshooter Wash earlier in 2012. This well produced an average of 7,350 BOE per day during the first 8 days of production. The company has 30,000 net acres under lease here and has several other Hogshooter wells in various stages of drilling and completion.
Bakken
EOG Resources also experienced strong growth from its Bakken development program with much of the growth generated by infill drilling in the Parshall field. The company is drilling on 320 acre spacing in some areas and plans to test even tighter densities in this field.
Other operators developing the Bakken are using less dense spacing when drilling. MDU Resources (NYSE: MDU) has acreage in Stark County and has decided to drill on 1,280 acre spacing, up from the previous 640 acre spacing. The company cited more attractive economics for the decision.
Permian Basin
EOG Resources also reported good progress in the Permian Basin, where the company is operating a seven rig program targeting the Wolfcamp and Leonard formations. Initial production rates on recent wells came in as high as 1,110 barrels of oil per day along with varying amounts of natural gas liquids and associated natural gas.
Concho Resources (NYSE: CXO) is another exploration and production company that operates in the Permian Basin. The company has close to one million gross acres under lease and will add even more when it closes on the acquisition of Three Rivers Operating Company, a private oil and gas company with assets in the Permian Basin. Concho Resources will pick up 58 million BOE of proved reserves with the purchase and add 1,600 drilling locations to the company’s substantial inventory.
Conclusion
EOG Resources managed to increase oil and gas production growth for 2012 without a concomitant increase in capital spending. This situation delighted investors that are fearful of more runaway spending by aggressive exploration and production companies and further oversupply of these commodities.
shaleplays has no positions in the stocks mentioned above. The Motley Fool has the following options: long JAN 2013 $16.00 calls on Chesapeake Energy, long JAN 2013 $25.00 calls on Chesapeake Energy, long JAN 2014 $20.00 calls on Chesapeake Energy, and long JAN 2014 $30.00 calls on Chesapeake Energy. Motley Fool newsletter services recommend Range Resources. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
